As the crypto market continues to trend in the current bear market climate, investors remain wary of the potential unseen risks that jump out of unregulated elements of trading. To provide greater insight into the regulations that govern the sector, Congress took another swing at clarifying the rules for the industry and protect investors on Wednesday.
Exploring Regulatory Clarity for Crypto Sector
During the House Agriculture Committee hearing, a number of witnesses presented testimony on the gaps in the existing regulation and financial oversight of the crypto sector. Regulatory clarity is offered in either of two ways–either an official federal regulatory agency issues guidance and dictates rules that apply to the sector, or Congress proposes a law that defines the area of concern. The industry was previously optimistic for a legislative solution but as time progressed, skeptics voiced their opposing views.
Key speakers included Timothy Massad, former Chairman Commodities Futures Trading Commission, Marco Santori, Chief Legal Officer at Kraken, and Web3 Foundation Chief Legal Officer Daniel Schoenberger.
Standardised Principles for Trade Exchanges: Regulatory Clarity for Digital Assets
Massad proposed that Congress should pass a law that creates certain standardized principles across all trade exchanges, regardless of the token classification as a security or commodity. He argued that this approach would essentially mean that digital asset securities that are currently being “regulated out of existence or at least out of the United States” would be able to remain compliant with federal regulations.
One significant issue discussed during the hear is the lack of a federal spot market regulator for non-securities cryptocurrencies like Bitcoin and Ethereum. Purvi Maniar, deputy general counsel of FalconX, implied that without legal clarity, investors’ protection on crypto trading platforms is inadequate.
While the existing SEC regulatory framework has been used to classify these digital assets, some such as Hilary Allen from American University Law School view this approach as an “inaccurate misdirection” and believes that it is entirely possible for blockchain-based business models to conform to existing investor protection and financial stability regulations.
Joint Resolution: Crypto Sector Guidance Urged
The session ended with a joint resolution from the legislative members of Congress, urging the Securities and Exchange Commission and Commodity Futures Trading Commission to provide further guidance in the crypto sector.
The takeaway from the session is that while the industry remains highly optimistic that a bill will be pushed into law, the issue of lack of unified legislation has been made even more pressing. On one side, the SEC Chair Gary Gensler is highlighting the importance of full disclosure, while CFTC Chair Rostin Behnam is calling for more aggressive action against non-compliant cryptocurrency projects.
Unifying Crypto Regulations: Investor Protection in the Digital Age
Taken as a whole, the divergent views on the regulation of cryptocurrencies are indicative of a diverse landscape. As the industry continues to blaze the frontier of digital assets, there is an urgency for the U.S. Congress to reach a consensus on cryptocurrency regulation. Investors need assurance that the laws governing their investments are understood and clear. Rapid technological advancement and adoption of new technologies (like blockchain) need to be supported by legal and regulatory defenses that can eliminate risks.
The lack of legal clarity has both governmental, industry, and investor stakeholders clamoring for unified legislation. Whether or not a bill will be signed into law this year remains to be seen, but with more open dialog, an understanding of crypto regulations should become clearer as the year progresses. With optimism prevailing, the only certainty is that Congress will be making more swings as they seek to protect investors from potentially risky investments.
Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.
